Warren Buffett annual letter

Below are some of my highlight points from the letter to shareholders.

Over time, stock prices gravitate toward intrinsic value. (page 3)

This is a great yet totally simple point that long-term investor need to remember. If we hold quality companies, the share prices will do all sorts of things over the short term. But long-term they will gravitate towards intrinsic value giving the shareholder price uplift. So, ignore short term price moves and focus on the long-term growth of profits.

Share Repurchases (page 7)In the investment world, discussions about share repurchases often become heated. But I’d suggest that participants in this debate take a deep breath: Assessing the desirability of repurchases isn’t that complicated.

From the standpoint of existing shareholders, repurchases are always a plus. Though the day-to-day impact of these purchases is usually minuscule, it’s always better for a seller to have an additional buyer in the market.

For continuing shareholders, however, repurchases only make sense if the shares are bought at a price below intrinsic value. When that rule is followed, the remaining shares experience an immediate gain in intrinsic value.

It is puzzling, therefore, that corporate repurchase announcements almost never refer to a price above which repurchases will be eschewed. That certainly wouldn’t be the case if a management was buying an outside business. There, price would always factor into a buy-or-pass decision.

I suspect that with the local Dividend Withholding Tax (DWT) having been increased to 20% in the last budget we may start to see more share buyback programs. This is fine as long as there are details about the prices to be paid.

“The Bet” (or how your money finds its way to Wall Street) (page 21)

Subsequently, I publicly offered to wager $500,000 that no investment pro could select a set of at least five hedge funds – wildly-popular and high-fee investing vehicles – that would over an extended period match the performance of an unmanaged S&P-500 index fund charging only token fees. I suggested a ten-year bet and named a low-cost Vanguard S&P fund (VOO) as my contender.

With a year to go in the bet the hedge Funds is 2.2% vs. 7.1% for the VOO.

Adding to this, most of us here are active investors holding individual shares. That said we should still have a core portfolio of Exchange Traded Funds to protect us from ourselves. We invest because we’re confident we can beat the market, but some core ETFs are an insurance policy in case we fail.

Last point is page 19 has their top holdings with Apple a new entry (holding 1.1% of the company) and a number of airlines.

Some of the stocks in the table are the responsibility of either Todd Combs or Ted Weschler, who work with me in managing Berkshire’s investments. Each, independently, manages more than $10 billion; I usually learn about decisions they have made by looking at monthly trade sheets.

One of Todd or Ted is the likley successor to Buffett when he steps down one day.